Pros and Cons of Low Cost Franchises

I am often asked by interested clients about the cost of franchise opportunities and where to start looking. Before they consider price as a starting point, I strongly suggest that they spend time reflecting on WHY you want to own a franchise and write down your reasons – most folks have three or four compelling reasons. This will be far more important than the price. For example, “making lots of money” is not a strong reason. It is an outcome of your efforts. You’ll have to dig deeper than that! Matching your unique skills and personality to a business model that requires those specific skill sets is far more important than anything else – period!

However, price consideration is a high priority for most. The real question behind the “how much” price question is how best can I manage risk? Clients are really asking for insight to:
1. How long to breakeven?
2. How long before I can start paying myself?

Pros and consLow cost franchise opportunities can be a double edged sword. If I buy a franchise that is low cost, how much support will I actually receive from the franchisor. What level of training will they provide? Will the training last long after I open my doors or will it evaporate shortly after opening. What is the sophistication of their marketing program – in other words, how strong is the customer acquisition and customer retention program? As we all know, without customers your success rate will be challenged.

Many are attracted to franchising because they don’t have to reinvent the systems that most small business startups lack. The franchisor has likely developed and refined many of their processes reducing administrative tasks allowing you, as the business owner, to focus on driving sales. Good systems cost money.

The flip side to that is how entrepreneurial are you? Some are interested in finding a franchise that allows them a fair amount of latitude to operate. They don’t want to be “pigeon holed” into a box. They seek freedom to operate and the autonomy to set their own schedule. Flexibility is an important criteria and often ranks higher than money.

From a banking perspective, when your small business managers evaluate a business plan, they will place a heavy weighting on how sophisticated the franchisor’s systems & processes are and the track record of the franchise. Banks, much like most business owners, are looking at ways of reducing their risk and having proven systems in place are an important consideration.

I have seen franchise fees as low as $15,000 that offer incredible value to their franchisees providing the continuous support setting them up for long term success while noting other more expensive franchise fees that offer very little long term value to their franchisees. Understanding the value proposition is a critical element to moving forward with your research of that particular franchise.

When looking at the cost of a franchise, ask yourself, what support do I get for my franchise fees and royalties and how will that address my original risk questions; How long to breakeven and the timeline to when you can start paying yourself.

 

 

 

ChuckChuck has over 21 years as a successful entrepreneur and small business owner. He started his service-based business from scratch, evolving it into being recognized as one of the elite service providers in Canada with annual ROI of 15% – 18%.  He brings a unique perspective to the franchise business knowing first-hand the value of effective business systems and what it takes to start and grow a successful business.  Chuck’s extensive management skills include budgeting, P&L management, sales, marketing, executive-level negotiations, human resource development, operations and logistics management.  With real world experience, Chuck has a great perspective on understanding franchise systems big and small.